Taxes on small private pension

If you are granted Residency (TIE) here in Jan to June of any year, you become tax-Resident as at 1st Jan that same year.

If you are grated Residency (TIE) in July  to December of any year, you become tax-Resident on 1st Jan the following year.

Once tax-Resident, you will pay income tax on income from your UK pension at your marginal tax rate.

If you take your lump sum as tax-free in the UK before you become tax-Resident in Spain, there will be no further tax (on the lump sum drawn down) in Spain.

Hi will60 

Thanks for the reply so if I take my 25% before the 1st July then draw down the rest up to 31 st dec I will pay the 20% uk tax on the remainder however if I start to draw it down after the 31 dec ie when I become a tax residence will I pay the 20% uk tax as well as spanish tax at 23% so if I wait until jan I will pay tax realistically at 43%is that correct or does the Spanish tax cancel out the uk tax if that makes sense 

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There is a non-double taxation agreement between the UK and Spain. So once you are tax-resident in Spain, you stop paying income tax in the UK.

(Take care though ... if you sell a UK home after you become tax-resident in Spain, you will pay capital gains tax on your profit in Spain).

There is a complication on the income tax though .... let's say you become tax-Resident in Spain on 1/1/23, you continue paying PAYE in the UK. Income tax in Spain is managed in arrears, and the tax year is Jan to Dec. You will declare your income for Jan-Dec 23, to Spain, in June 24. You will then pay that income tax in 2 chunks (June and November 24). In around Sept 24 you will apply to the Spanish authorities for a certificate confirming that you are paying tax in Spain. You then submit the certificate to HMRC, and seek release from UK income tax liability. There is a crossover period, during which you pay tax in both countries; after the certificate is cleared, you can claim back income tax paid to HMRC after 1/1/23 (you are assigned a zero-rate tax code).

Anything you draw down from your private pension after 1/1/23 will be subject to income tax in Spain at your marginal tax rate. If you draw it down before your tax certificate is cleared, you will pay in the UK and Spain, then claim it back from the UK.

FWIW, our claim-back timeline was extended by Covid and we ended up paying tax in both countries for 2 years. It should be better now, but beware ! 

Just a couple of words of warning.
Firstly Spain doesn’t allow a 25% tax free lump sum like in the uk, so as been stated; if your timing is off in terms of taking the money and residencia you’ll have to pay Spanish tax on it.
Secondly, yes there is a double taxation treaty, but your chances of getting your money anytime soon are very limited. The HMRC currently owe us £30k (started at a far lower sum!), but we’ve been waiting for over a year for them to even assess the claim, and in the meanare being taxed in both countries. They tell us they won’t get around to assessing our claim until July at the earliest. During this time the figure keeps rising!!!

And note that if the remainder of your pension ‘pot’ is outside Spain after you have become tax resident, and over €50k you must declare it using Form 720. This applies to any assets outside Spain and is separate to any taxation.

Thanks for this information. Would you have to pay tax on your state pension if that was the only income you receive other than savings you have?

Am I correct in saying that when we come to sell our UK House we need to do this after July in the year proceeding our move to Spain to avoid CGT?

thanks in advance

I don't receive a state pension yet, so I can't say for sure, but I think the answer is yes .... you declare your UK state pension in Spain, and pay tax as required.

To avoid Spanish CGT, the key is to sell your UK home (and take the profit) before you become tax-Resident in Spain. So ... if your TIE is granted between Jan-June, you become tax-Resident w.e.f. 1st Jan that same year. If your TIE is granted between July-Dec, you become tax-resident w.e.f. 1st Jan the following year. 

Are There any other taxes involved for non working retired people in Spain, regardless how much you have.

Hi 

We’ll I got some advise from a financial advisor whose in Spain and as a result I’m not moving over until the beginning of July to avoid the tax on the business I’m selling however I recently found a site on YouTube call youtoospain and one of his post is dedicated to expats and tax implications 

I would recommend anybody considering moving to Spain to watch this very very informative post  

Good luck to everybody doing it I’m at the last hurdle about to get the appointment at the consulate ferry booked counting down the days until July 

🤞🤞🤞